While other figures from BlackBerry Ltd (NASDAQ:BBRY) may seem the more important metrics to focus on, the key figure from the besieged company is margins, according to IDC Chief Research Officer Crawford Del Prete.
In an interview with Cory Johnson for Bloomberg West, Del Prete discusses why he is so keen on analyzing BlackBerry Ltd (NASDAQ:BBRY)’s margins. Asked how people should model the firm going forward, he said that it would probably be a shrinking business in terms of top line.
“I do think you have to model this as a stabilization slowly-declining revenue business with an improving margin base. That’s why I am so focused on that margin profile and what that margin profile looks like because this business is going to be, absolutely without a doubt, smaller on the top line a year from now than it is today,” Del Prete tells Johnson.
However, he points out that even if BlackBerry Ltd (NASDAQ:BBRY) does show decline in revenue over the years, it would be healthier if it improves margins. He says that he thinks that this is what people should be looking for as the firm increases its revenue from its software business. This is probably why the company is also trying to bring their software to other platforms, he adds.
BlackBerry Ltd (NASDAQ:BBRY) is fresh off of reporting is fourth quarter results with total revenue at $660 million broken down to $310 million from services, $277 million from hardware, $66 million from software and $7 million from other sources. The firm made a profit of $28 million.
Johnson and Del Prete also discuss why there is a gross margin decline in the company when they are working more with ODMs (Original Device Manufacturers) that are making which means margins should increase.
Del Prete says that he thinks “what it comes down to is you have to put some incentives out there to get people to pay up for the platform. If you are going to stay relevant, you have to be price aggressive at least initially to keep people on that platform. So they are kind of balancing this idea that you have a loyal customer base but are also trying to attract people to the new touch-enabled BlackBerrys.”
The company is trying to get people on those platforms, the analyst says and it has to give incentive for people to try those products more so than what it gives as incentive for those getting the traditional keyboard-based products the company is releasing.
Meanwhile, Del Prete and Johnson took note of the 20% improvement in software for the company. The IDC research chief said that better cash flow from this side of the business means a new revenue growth engine for the company albeit small part of the overall business. Nonetheless, it affects the gross margin and profit lines in a bigger way as there is usually higher margins for software, he says.
As for hardware, he says that it means a lot now because it contributes 40% of BlackBerry Ltd (NASDAQ:BBRY)’s top line. Having said that, however, he notes that he expected a little better stabilization in the company’s gross margins because what the company essentially has is a fan base showing their “undying loyalty” to the platform. This means the firm could probably test the level of price sensitivity for those customers, he says.
Essentially, the firm could test how high they can sell their devices to their loyal customers for, he says, but he also noted that the firm is juggling with expanding the pool of BlackBerry users over time. This is a very, very difficult task, Del Prete says, as people have been fleeing the BlackBerry platform in recent years.
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